LONDON, 8th June (Reuters) – According to credit ratings agency Moody’s, a projected 10% drop in house prices is expected within the next two years in Britain. The agency cautioned on Thursday that the housing market could potentially face a prolonged recession if a more severe downturn occurs.
Moody’s Investor Service stated in a report that the UK (Aa3 negative) housing market will experience a correction due to persistently high inflation and the recent surge in lending rates.
Last month, unexpectedly robust inflation figures in Britain led to a significant rise in market interest rates, as investors hurried to incorporate predictions of further increases in borrowing costs from the Bank of England in the coming months.
Mortgage providers have substantially raised their interest rates in response, with current rates for two-year agreements surpassing 5%, in stark contrast to the rates of less than 3% seen merely a year ago.
Moody’s cautioned that if house prices were to undergo a more significant decrease of approximately 21%, the repercussions would be far-reaching across the economy.
“The United Kingdom’s national government would enter into a recession during the latter part of 2023, extending for a duration of six quarters. By the end of 2024, unemployment levels would reach 6%, remaining below its peak during the global financial crisis,” stated the report.
After experiencing a period of recovery earlier this year, the housing market displayed signs of weakness towards the end of 2022, prompted by a surge in mortgage rates attributed to the economic policies implemented by former Prime Minister Liz Truss.
However, numerous economists anticipate a decline in house prices throughout this year as the Bank of England’s measures to increase borrowing costs gradually translate into higher mortgage expenses.
Both Halifax and Nationwide, rival lenders, released house price indexes this month, revealing year-on-year drops for the first time since 2012.
A recent Reuters survey involving economists and property analysts projected a likely 3% decrease in house prices this year, with expectations of stability in 2024.
Reported by Andy Bruce; edited by William James
